WASHINGTON – The International Monetary Fund said on Monday that the global economy is expected to slow this year as central banks continue to raise interest rates to control inflation, but it suggested that output will be more resilient than previously expected and that a global recession could be imminent. Probably avoidable.
The International Monetary Fund upgraded its economic growth forecasts for 2023 and 2024 in its closely watched World Economic Outlook report, pointing to resilient consumers and the reopening of China’s economy as among the reasons for the optimistic outlook.
However, the fund warned that the fight against inflation is far from over and urged central banks to avoid the temptation to reverse course.
“The fight against inflation is beginning to bear fruit, but central banks must continue their efforts,” Pierre-Olivier Gourinchas, the IMF’s chief economist, said in an article accompanying the report.
Global output will slow to 2.9 percent in 2023, from 3.4 percent last year, before picking up again to 3.1 percent in 2024. Inflation is expected to ease from 8.8 percent in 2022 to 6.6 percent this year and 4.3 percent next year. .
After a series of downgrades in recent years as the pandemic worsens and Russia’s war in Ukraine escalates, the IMF’s latest projections were higher than those released in October.
Since then, China has abruptly reversed its “zero-Covid” lockdown policy to control the pandemic and began reopening quickly. The IMF said the energy crisis in Europe was less severe than initially feared and the weakness of the US dollar was providing relief to emerging markets.
The IMF had earlier predicted that a third of the global economy would be in recession this year. However, in a news conference ahead of the release of the report, Mr.
“Globally, or even if we think about the number of countries that are in recession, we see a very low risk of recession,” Mr. Gourinjas said.
Despite the more optimistic outlook, global growth remains weak by historical standards and the war in Ukraine continues to weigh on activity and sow uncertainty. The report also warns that the global economy still faces significant risks, warning that “severe health effects in China could hamper the recovery, Russia’s war in Ukraine could escalate and tighter global financial spending could worsen the debt crisis.”
Growth in rich countries is expected to be particularly sluggish this year, with nine out of 10 advanced economies likely to have slower growth than in 2022.
The IMF forecasts growth in the US to slow from 2 percent in 2022 to 1.4 percent this year. It expects the unemployment rate to rise to 5.2 percent from 3.5 percent next year, but there is still room to avoid a recession. The world’s largest economy.
“There is a short path that allows the US economy to escape a recession altogether, or if there is a recession, the recession will be relatively shallow,” Mr. Gourinjas said.
The IMF said the slowdown in Europe is likely to deepen as the stimulus from the reopening of its economies fades this year and consumer confidence weakens in the face of double-digit inflation. In the euro area, growth is forecast to slow to 0.7 percent from 3.5 percent.
China is expected to pick up the slack from 3 percent in 2022 to 5.2 percent in 2023.
Together, China and India are expected to account for half of global growth this year. IMF officials said at a press conference on Monday night that China’s economic trajectory will be a key driver for the global economy, after a period of run-up in which China appears to have stabilized and is able to fully produce.
However, Mr. Gourinchas noted that there are still signs of weakness in China’s property market and that growth in 2024 may moderate. The report described it as a “major source of vulnerability” leading to widespread default and instability by developers. Chinese financial sector.
Russia, a surprising contributor to global growth, says Western efforts to freeze its economy are faltering. The IMF forecast Russian output to expand 0.3 percent this year and 2.1 percent next year, defying earlier forecasts of a steep contraction in 2023 amid Western sanctions.
A joint US and European plan to cap the price of Russian oil exports at $60 a barrel is not expected to significantly reduce the country’s energy revenues.
“At the current level of the Group of 7 oil price ceiling, Russian crude oil export volumes are not expected to be significantly affected, with Russian trade being diverted from sanctioned countries to non-sanctioned countries,” the IMF said in a statement.
Among the IMF’s most pressing concerns is the growing trend toward “fragmentation.” The war in Ukraine and the global repercussions have divided countries into factions and strengthened pockets of geopolitical tension that threaten to hamper economic progress.
“Fragmentation could intensify – with greater restrictions on cross-border movements of capital, labor and international payments – and hinder multilateral cooperation in the provision of global public goods,” the IMF said. “The costs of such fragmentation are high in the short term because it takes time to transform disrupted cross-border flows.”
